from the money-can't-buy-you-love dept

Poor Comcast. Despite throwing millions of dollars at think tanks, consultants, PR reps, editorial writers, various front groups and a myriad of other policy tendrils, genuine, meaningful support for the company's $45 billion Time Warner Cable acquisition is still apparently hard to come by. You might recall that last year top Comcast lobbyist "Chief Diversity Officer" David Cohen proudly crowed that support for the company's merger was "pouring in" -- though he failed to mention that Comcast was paying people for that support, and that said support largely consisted of regurgitated form letters.

Despite the money spent however, it appears that actual support in Congress for the deal is tepid to non-existent. Comcast's hometown paper the Philadelphia Inquirer points out that whereas the NBC deal saw major support efforts by members of Congress, politicians appear to want nothing to do with this latest merger attempt:

"When Comcast made its move to buy NBCUniversal, more than two dozen letters from Congress - including one from 22 Republicans - landed at the Federal Communication Commission early in its review. Dozens more, from key chairmen and rank-and-file members of both parties, arrived before that deal was approved in 2011. The vast majority supported the merger, including one signed by 97 House members and several from minority lawmakers who hailed Comcast's commitment to diversity.
But as the Philadelphia giant now pushes a merger with Time Warner Cable, Comcast has had little congressional support, and almost none outside its home state."

"Meanwhile, more than 50 black, Hispanic, and Asian members of Congress have expressed concerns about the impact of this deal and others, warning in a letter to the FCC that recent media "mega-mergers" show that "even the most reasonable conditions and diversity pledges" have proved difficult to enforce."

Most analysts meanwhile see the chance of the DOJ and FCC merger getting approval dropping by the week. The FCC has been on an uncharacteristic consumer-friendly tear of late, whether that's raising the definition of broadband to 25 Mbps, crafting new net neutrality rules or fighting for municipal broadband. As such, approving the Comcast deal without some tougher-than-usual conditions just doesn't seem likely. I personally think the deal will be approved, it will just be saddled with conditions heavily focused on keeping Comcast's bad ideas far away from internet video. Whether those conditions actually work or are enforced will be another issue entirely.

Meanwhile, it's kind of amusing to see telecom companies failing to recognize their own hubris isn't helping their case. As we saw when the DOJ rejected AT&T's attempted acquisition of T-Mobile, there really is a limit to the amount of bullshit you can push before you reach the point of diminishing returns. Using astroturf, claiming that killing competitors creates competition and lowers prices -- or that everyone who opposes your deal is ignorant or irrational -- clearly crosses that particular Rubicon. If you're already one of the most hated companies in the country, that only adds insult to injury.

It remains frequently uttered because it's true: money just can't buy you love.

from the preach-it,-tom dept

The big broadband providers have all been spinning a yarn for a while now pretending that there's widespread competition. A key partner in this has been the FCC, which for years has helped spread this myth by pushing out totally bogus broadband data. If you want a good laugh, go over to BroadbandMap.gov and type in your address -- and discover a bunch of bogus claims about broadband which you really don't have. The speeds are inflated. The services are inflated. It includes mobile data broadband, despite it being priced much, much higher and with very low caps and limits -- and speeds that no one truly considers to be broadband but, that doesn't stop the big broadband players from using that bogus data to claim there's tons of competition.

It looks like maybe, just maybe, the FCC is going to be getting out of the business of furthering this bogus narrative. FCC boss Tom Wheeler gave a very interesting speech today, in which he spoke out about the lack of any real competition. Not only that, he didn't use the FCC's old bogus definitions of broadband. Instead, he made it clear that when we're talking about real broadband most people have no competition. The FCC released this chart in conjunction with his speech:

Every part of that chart is useful, because it doesn't just blindly say "broadband" and lump in a bunch of crap that isn't broadband. It shows there may be some (still not much) competition at very low speeds, but as you get up to real broadband speeds, competition basically disappears, with most people having only one option (or no options!). Past FCC's have lumped all this data together in a misleading way to pretend there's a lot more competition. It's good to see Wheeler clearly admit that there isn't -- and that this is a big problem.

Wheeler makes it clear that 4 Mbps may be the official FCC definition of broadband, but it's not really broadband with today's internet:

The bar on the left reflects the availability of wired broadband using the FCC’s current broadband
definition of 4 Mbps. But let’s be clear, this is “yesterday’s broadband.” Four megabits per second isn’t
adequate when a single HD video delivered to home or classroom requires 5 Mbps of capacity. This is
why we have proposed updating the broadband speed required for universal service support to 10 Mbps.

But even 10 Mbps doesn’t fully capture the increasing demand for better wired broadband, of
which downstream speed is, of course, only one component. It’s not uncommon for a U.S. Internet-connected household to have six or more connected devices – including televisions, desktops, laptops,
tablets, and smartphones. When these devices are used at the same time, as they often are in the evenings,
it’s not hard to overwhelm 10 Mbps of bandwidth.

And consumer demand is growing; today over 60% of peak-time downloads are streaming audio
and video. While today that video may be for entertainment, other applications are right behind. For
instance, if we are to tackle healthcare costs, high-speed broadband video for remote examination,
diagnosis and even surgery is important. If our students are to get a 21st Century education, high-speed
broadband to the classroom is essential. And, increasingly, that high-speed will be in both directions

And, he finally admits that wireless broadband is not a real competitor:

We have great hopes for wireless as a potential substitute for fixed broadband connections. But
today it seems clear that mobile broadband is just not a full substitute for fixed broadband, especially
given mobile pricing levels and limited data allowances. We welcome, and we must encourage, the
development of new technologies that can bring greater competition and more choices to consumers.

Furthermore, Wheeler says he recognizes how many other problems are created when there is no real competition in the broadband market:

The simple lesson of history is that competition drives deployment and network innovation. That
was true yesterday and it will be true tomorrow. Our challenge is to keep that competition alive and
growing.

Of course, some of us have been saying exactly that for years, while wondering why the FCC was doing nothing to help it -- and, actually, often helping to enable consolidation, rather than competition.

Wheeler also notes that while Google Fiber and other experiments have clearly driven big broadband players to increase investment (not decrease it), Google Fiber and a few similar players are few and far between with very limited footprints.

On top of that, he points out that the switching costs are too high. Even if you have choices, if it's a pain to switch from one to the other that makes you captive to the broadband provider you've signed up with -- and apparently he wants that to change as well.

But even two “competitors” overstates the case. Counting the number of choices the consumer
has on the day before their Internet service is installed does not measure their competitive alternatives the
day after. Once consumers choose a broadband provider, they face high switching costs that include
early-termination fees, and equipment rental fees. And, if those disincentives to competition weren’t
enough, the media is full of stories of consumers’ struggles to get ISPs to allow them to drop service.

Okay. So all of that was very good to see, and actually quite refreshing from the FCC. But there's the big question that remains: we've seen FCC people claim we need more competition, but they've done little to actually make that happen. And... that's where Wheeler's speech begins to fall down. Then it devolves back into lip service. Wheeler says the FCC will protect competition where it exists, will "encourage" greater competition where it is needed, will work to "create" competition where there is none and where that's impossible, will "shoulder the responsibility for deploying" broadband. But, what will that actually mean in practice?

Wheeler has talked about preempting bans on muni-broadband, but that needs to become a reality (even as some of Big Broadband's friends in Congress have sought to block it). He doesn't really mention anything about net neutrality or reclassifying broadband under Title II -- which would actually give the FCC more power in this space. He doesn't say anything about the Comcast, Time Warner Cable merger, which would clearly (despite what those companies claim) limit competition (not directly in a market by market basis, but in creating a large dominant player in negotiating deals).

Not that anyone actually expected Wheeler to tip his hand on any of those things before an official decision is made, but it's one thing to talk the talk -- and the talk was good -- but to actually walk the walk? It's been a long time since we've seen an FCC willing to make the tough decisions.

from the because-fulfilling-promises-is-hard dept

We've covered in the past how Verizon has a long history of making promises to regulators to get special deals, and then never delivering. Usually these promises involve providing high speed fiber to the home connections, for which they get massive tax breaks and subsidies... and then never delivering. And, if people finally point out that it didn't deliver, it lobbies to drop the requirements that it had agreed to abide by (but never actually did). Of course, there's a very similar story with AT&T, and telecom analyst Bruce Kushnick, who's been the leading voice on these broken promises for years, has the details. In fact, what he notes is that AT&T has made some rather specific promises about providing broadband to get approval of mergers, but has never delivered. And now it's doing the same for its attempted merger with DirecTV.

He notes that, first, AT&T (then called SBC) promised a massive fiber broadband in 2004, as part of convincing the FCC to kill off open access requirements for fiber optic networks. So did BellSouth (eventually bought up by AT&T). And yet, the numbers they promised were never met. Because, of course they weren't. Then, when the AT&T was buying BellSouth a few years later, it promised to offer 100% broadband penetration.

If you can't see that, all you really need to know is that it says "By December 31, 2007, AT&T/BellSouth will offer broadband Internet access service... to 100 percent of residential living units in the AT&T/BellSouth in-region territory." Okay. Now, remember that, and fast forward to today. As you know, AT&T is trying to buy DirecTV, and one of the reasons it's citing for the merger is... that it will help bring broadband to 15 million customers that don't currently have broadband. Here's the press release.

AT&T will use the merger synergies to expand its plans to build and enhance high-speed broadband service to 15 million customer locations, mostly in rural areas where AT&T does not provide high-speed broadband service today, utilizing a combination of technologies including fiber to the premises and fixed wireless local loop capabilities."

Huh. As Kushnick points out: "If AT&T is already supposed to have 100% completed, how can 15 million locations -- at least 20% of all AT&T areas, not already have high speed broadband?" This certainly suggests that AT&T just flat out lied to help get the earlier merger completed.

Meanwhile, Karl Bode is pointing out that it's not just on the wireline side that this happens. Jump over to the wireless side, and its attempted (but failed) acquisition of T-Mobile, and you'll find a similar story:

AT&T does the same thing with wireless. Back when AT&T was trying to get approval to acquire T-Mobile, the company shot itself in the foot by accidentally posting a confidential document showing it would cost AT&T just $3.8 billion more to go from 80% nationwide LTE coverage to 97% coverage, something AT&T had been claiming was only possible if they were allowed to pay $39 billion to eliminate T-Mobile.

Of course, what we've now learned is that the telcos appear to know that they can pretty much say whatever they want, as long as it sounds good, because no politician or regulator is likely to ever look back and call them out on their previous unmet promises.

from the a-look-at-the-history dept

The cable and phone companies are telling people in DC that the Internet has benefited from "no" net neutrality rules. They claim, since there were no rules for a decade, we don't need them now. They've got the story exactly backwards: we have had active FCC interventions on net neutrality. That's one reason we have had a neutral Internet until now. Indeed, since 2004, we have had enforcement actions, policy statements, merger conditions, spectrum conditions, and a rule. The first time we have had the FCC announce that it would not ensure neutrality but would instead authorize fast lanes ... was Chairman Wheeler's comments earlier this year.

While very often imperfect, the FCC has done much to ensure an open internet. Carriers have not historically engaged in rampant discrimination partly due to the threat of FCC action. In 2004, the FCC's Chairman issued a speech about the "Four Freedoms" online, which promised to keep the Internet an open platform. In 2005, the FCC punished Madison River, a small telephone company that was blocking Vonage, an application that powered online phone calls competing with Madison River's own service. In 2005, the FCC adopted an Internet Policy Statement and pledged to respond to any violations of the statement with swift action. In 2008, after it was discovered that Comcast, the largest ISP in the nation, was interfering with some of the internet's most popular technologies -- a set of five peer-to-peer (P2P) technologies -- the FCC enjoined Comcast in a bipartisan decision. Much of the cable industry was engaging in such actions, so this wasn't a small exception. In 2010, the FCC adopted the Open Internet Order that was only recently struck down.

Additionally, in the years since 2005, the FCC has conditioned spectrum assignments and mergers on net neutrality rules. The largest three broadband providers have been (or remain) subject to net neutrality for many years. AT&T accepted two-year net neutrality conditions in its merger with BellSouth, and SBC accepted a two-year condition in its merger with AT&T. Verizon accepted a similar condition in its merger with MCI. Verizon purchased a 22MHz band of spectrum (the C block) in the FCC's 2008 700MHz auction for $4.7 billion dollars, and did so subject to open internet conditions modeled on the Internet Policy Statement. Comcast has been subject to network neutrality rules since its merger with NBC in 2011, and the merger condition extends for seven years. Both Verizon and Comcast's conditions still apply today. Moreover, Congress imposed contractual obligations on internet networks built with stimulus funds -- nondiscrimination and interconnection obligations that, at a minimum, adhered to the internet Policy Statement, among other obligations.

In light of these merger obligations, license conditions, FCC adjudications and rule-making, stimulus conditions, and consistent threats of FCC action, startups have enjoyed a generally neutral network that is conducive to, and necessary for, innovation. These actions provided some certainty that startups would not be arbitrarily blocked, subject to technical or economic discrimination, or forced to pay carriers so that the carriers' consumers can access all the innovation online.

Following the Verizon v. FCC decision, and under the Chairman's proposal, that will likely change, in ways that harm entrepreneurship and the public interest.

The past decade of tech innovation may not have been possible in an environment where the carriers could discriminate technically and could set and charge exorbitant and discriminatory prices for running internet applications. Without the FCC, established tech players could have paid for preferences, sharing their revenues with carriers in order to receive better service (or exclusive deals) and to crush new competitors and disruptive innovators. Venture investors would have moved their money elsewhere, away from tech startups who would be unable to compete with incumbents. Would-be entrepreneurs would have taken jobs at established companies or started companies in other nations. The FCC played an important role. The Chairman and this FCC shouldn't break that.

from the because-. dept

Oh, Comcast. Remember how it was going to try to be a bit more subtle in pushing for approval of its merger with Time Warner Cable? Well, you can only deny your true nature for so long. The main force behind getting the merger approved, Comcast's Executive VP David Cohen -- the company's most powerful lobbyist who isn't registered as a lobbyist because he's realized that as long as he says he's not lobbying, he isn't -- has announced that no one knowledgeable or reasonable has objected to the merger. By implication, of course, this means that everyone objecting to the merger is ignorant and unreasonable:

"I have been struck by the absence of rational, knowledgeable voices in this space coming out in opposition or even raising serious questions about the transaction." Cohen added.

Meanwhile, the obviously ignorant and unreasonable Writers Guild of America West has spoken out against the merger, noting that Comcast's increasing use of broadband "caps, tiers, metering or other usage-based pricing" could create serious problems in killing off competitive online video distributors. And the eminently knowledgeable and reasonable Comcast retorted that it doesn't have any caps at all. Oh no. It's merely "testing data thresholds."

"We don’t have data caps — and haven’t for about two years," said Sena Fitzmaurice, Comcast’s vice president of government communications. "We have tested data thresholds where very heavy customers can buy more if they want more — but that only affects a very small percentage of our customers in a few markets."

Apparently, spewing complete bullshit is the only thing that counts as "reasonable" and "knowledgeable" in the minds of Comcast's top execs.

HP directors and bankers calculated how much revenue Autonomy would have to add over 10 years to justify such a price. Autonomy’s trajectory alone wouldn’t get there. The deal required assuming more revenue growth as a result of the tie-up than HP usually assumed in acquisitions, said people familiar with the matter. But the directors believed they could make the numbers.

Those calculations were done without knowledge of the alleged fraud but who cares? Here is, roughly, HP’s thought process:

Autonomy’s DCF value is Y1 based on expected revenue growth but no synergies

Y1 < X

Well but the DCF value is Y2 with regular-to-aggressive synergies

Y2 < X

Well but … well we could make up another number Y3

Y3 >= X

LOOKS GOOD.

If you notice that current revenue numbers are made up, then that changes Y1, but Y1 isn’t an input into Y3 – the actual value that HP put on Autonomy – because that number was also just made up. “Synergies” was just a plug to get the equation to balance. The bankers’ math in the board book to approve the deal was just there to be soothing – directors get twitchy3 if they can’t look at a football field slide while approving an acquisition – not to have an impact on the outcome. You can hypothesize that HP would have rejected the deal if it had known Autonomy’s true revenue situation, because then the valuation numbers wouldn’t work, but that is a silly hypothesis because even using fake4 revenues the valuation numbers didn’t work and it didn’t reject the deal.

That is too glib – off by a lot is worse than off by a little, and “oh you’re a massive fraud actually” is a great point to make in negotiating down the asking price – but I think it’s the right analysis. As Usha Rodrigues writes, “The die was cast on the Autonomy acquisition when the HP board picked Apotheker, a CEO ‘bent on a high impact acquisition.’” If you have a CEO who really wants to do a deal, and a deal he really wants to do, it’s hard to imagine that some accountant coming to him with some minor boring technical quibble like “all these revenues are fictitious” would cause any more trouble than – well, than some banker coming to him with some minor boring technical quibble like “the price you are paying is more than the discounted cash flow of this asset to you.” Shut up, nerds! We’re doing important CEO business here!

How should this make you feel about the social value of M&A? Sort of same as you always felt? Some deals are good and some are bad, and CEOs tend to like making acquisitions because they are optimists and doing acquisitions makes them feel like big shots, and boards should try to shut down acquisitions that are bad for shareholders, but sometimes they don’t because country clubs etc. Everyone knew that already; this anecdotal confirmation is pleasing but, after all, just anecdotal. I’m sure HP’s current CEO would never do an acquisition that might destroy shareholder value.

How should it make you feel about Dragon Systems? Dragon, you’ll remember, sold itself for stock to a company that turned out to be a giant fraud and whose stock turned out to be worthless; Dragon’s shareholders then went out and sued their ragtag team of junior investment bankers at Goldman for not noticing that the acquiror was a giant fraud. And one of those junior bankers testified that they did a “great job” for Dragon, insofar as “We guided them to a completed transaction.” This got them made fun of a lot, here and elsewhere, but you get the sense Apotheker would approve. Dragon’s, and HP’s, bankers saw themselves as service providers, providing a particular narrow service – roughly, transaction execution – and leaving other services (auditing, fraud detection) to other providers, or no one, as the case may be. It was clear – to the bankers, and HP, though perhaps not to Dragon – who was in charge of the deal, and it sure wasn’t the bankers.

One popular and reasonably promising path to medium-term success as an investment banker is to tell clients what they want to hear. This is good because then clients will find you pleasant to be around; it’s also good because what they want to hear is frequently “oh yeah you should totally do this transaction that involves paying investment banking fees.” So there’s a synergy there. CEOs, after all, tend to (1) want to do stuff, (2) want to do big stuff, and (3) have a high degree of confidence in their ability to make investing decisions. If those decisions are systematically biased toward destroying shareholder value … well, I mean, we just work here, y’know?

1.Though you should read the rest because it is pretty entertaining? Like this is good:

HP became aware that bloggers and some financial analysts had claimed in the past that Autonomy was aggressive in its accounting. HP asked Autonomy’s [CEO] Mr. Lynch about how his firm recognized revenue, receiving answers and documents that allayed concern, said HP General Counsel John Schultz.

Bloggers! That happened right after the acquisition agreement was signed, as did this: “[HP board chairman Ray] Lane spoke to senior HP executives and found a near-universal view that their CEO wasn’t right for the job.” Imagine being a board chairman and sidling up to like the CFO and saying “hey, everything good with this Apotheker dude?” and the CFO saying “no he’s horrible you have to fire him.” And you’re like, hmm, that’s discouraging. And you check in with the COO and hear the same thing. And then you ask everyone and get “a near-universal view that their CEO wasn’t right for the job.” Never mind the big acquisition you just signed. “Gee, you know that information really would’ve been more useful to me YESTERDAY,” you might find yourself thinking.

2.Which we’ll take as a given: it’s a 50% premium to market price, which “wasn’t unusual for a software deal.”

from the another-one-bites-the-dust dept

The major labels have been dropping one by one. Of course, they never "die out" completely... they just get weak enough until someone buys someone else. The Big Six became the Big Five when Universal took over Polygram. The Big Five became the Big Four when Sony (formerly CBS Records) and BMG effectively merged. And, now we're down to the Big Three as Universal and Sony pick off the remains of EMI. This was pretty much a foregone conclusion that there would be some sort of merger, when Citibank took over EMI after EMI defaulted on its debt obligations. Universal is picking up the music division for $1.9 billion while Sony gets the publishing side for $2.2 billion. Universal was already the world's largest record label, so adding the likes of the Beatles, Coldplay and Katy Perry to its roster must be appealing. Of course, there's some concern among regulators that this raises antitrust questions, but I really don't see the issue here. Universal Music has been self-imploding by failing to adapt. I don't see how merging it with EMI will do much other than to allow it to continue to be a nuisance and continue to not understand how to embrace the internet. Besides, spending $1.9 billion for more back catalog, rather than investing that kind of money into actually adapting? If anything, this simply accelerates the decline of these labels.

from the too-late dept

With so much attention paid to the new generation of music subscription offerings, Spotify, Rdio and Mog, it appears that the last generation, Napster and Rhapsody, decided the best course of action was to join forces in bitterness at the fact no one mentions either of them any more. The two companies have gone through a variety of different owners over the past decade or so, with Rhapsody being spun out from RealNetworks last year, and Napster being under the Best Buy umbrella for a while -- where almost nothing was done to build up the service. I recognize that the two companies may be annoyed that no one cares about them any more, but I really can't see either establishing enough of a presence to get back into the conversation.

from the ooops dept

NBC Universal is probably wishing that people didn't remember stuff from a few years ago right now. The folks over at the National Journal dug up NBC Univeral's vehement opposition to the AOL/Time Warner merger, which used all sorts of arguments that I would imagine NBC Universal would prefer were not used against its pending merger with Comcast. The letter, sent to the FCC in July of 2000 included this point:

"Given the size and scope of the proposed merged company, AOL/Time Warner will have both the ability and the incentive to discriminate against unaffiliated content providers such as NBC."

Furthermore, NBC Universal was quite worried about how that deal would impact net neutrality and asked the FCC to make clear net neutrality principles if it allowed the merger to move forward, asking the FCC:

"to establish firm principles of non-discrimination in the treatment of unaffiliated content providers in the broadband services marketplace"

Of course, Comcast is now very much against that concept.

Not surprisingly, the letter was signed by NBC Universal's General Counsel, Rick Cotton, who has a long history of sticking his foot in his mouth in saying things he later regrets -- such as his still hilarious quote about how corn farmers were being harmed by movie piracy, and who was a major source for the bogus Hollywood propaganda piece on 60 Minutes. Still, you have to imagine that he now regrets that letter -- and the fact that reporters have now brought it back to light.

from the doing-things-the-right-way dept

Redbox, the company that rents DVDs out of automated kiosks for $1 per night, has been bought for up to $176 million by its biggest investor, Coinstar. It was hard to dislike Redbox: the company was having a lot of success in a space where other companies hadn't, by creating a convenient and easy to use service that delivered at a great price. Plus, anything that gets Hollywood's knickers in an enormous twist generally is pretty good. Universal Studios, in particular, tried to hamper Redbox through threats leading to lawsuits (update: clarified that Redbox filed the lawsuit... in response to a threat from Universal), perhaps hoping to kill the company off before launching rental kiosks of its own. But rather than try to destroy Redbox, Hollywood (and plenty of other people) should learn from it: the way to success isn't by putting all sorts of obstacles in the way of your customers' happiness, it's by providing them a service they want, delivered in an easy way, with a lot of value.